New 'War On Christmas' Takes A Fiscal-Cliff Twist

The Christmas shopping season could be harmed if the fiscal cliff fight depresses consumer confidence, according to a new report from Obama administration economists.

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Originally published on December 4, 2012 7:19 pm

In past years, conservatives have used the phrase "war on Christmas" to liberally accuse liberals of trying to ruin the holiday through political correctness and anti-religiousness.

This year, it's the Obama White House warning that Republicans are a threat to Christmas or, more precisely, the part of the economy that relies on the holiday shopping season — retail sales.

Against the backdrop of negotiations between White House and congressional aides aimed at avoiding the dreaded fiscal cliff, President Obama's economic team warned Congress on Monday that failure to reach a deal could significantly hurt not just future economic growth but Christmas itself.

If Dr. Seuss had been an economist, he would've been hard-pressed to conjure up a more sobering picture of what might happen without an agreement than did Obama's economic advisers. Do not be the Grinch who steals Christmas, the report by Obama's economists warned congressional Republicans.

From a section of the report under the headline: "The Holiday Season is No Time to Threaten Middle-Class Pocketbooks":

"Consumer confidence over the next several weeks is particularly important: the National Retail Federation is forecasting that holiday sales will grow 4.1 percent this year to $586.1 billion. Last year, Americans spent around $50 billion on Black Friday weekend alone.

"If Congress does not act on the President's plan to extend tax cuts for the middle-class, it will be risking one of the key contributors to growth and jobs in our economy at the most important time of the year for retail stores."

The report cited considerable economic data meant to buttress the White House argument about economic harm that would be caused by federal income tax increases and spending cuts that will take effect next year if a deal isn't reached.

With consumers representing about 70 percent of economic activity, a Washington fiscal standoff that spooked them into parting with less of their money could do real economic harm, the report said.

If the tax hikes and spending cuts are allowed to take effect next year, consumer spending could fall by about $200 billion, or 1.7 percentage points, in 2013. That, in turn, could reduce the nation's gross domestic product by 1.4 points, the report said.

More from the report:

"This reduction of $200 billion is approximately four times larger than the total amount that 226 million shoppers spent on Black Friday weekend last year, or roughly the amount American families spent on all the new cars and trucks sold in the U.S. in the last year."

One disagreement going into the negotiations is whether marginal tax rates on the wealthiest would be allowed to rise, perhaps to 39.6 percent from 35 percent. Obama campaigned on higher taxes for couples making more than $250,000. Congressional Republicans oppose higher rates on the wealthiest.

Some conservatives saw the report as a transparent attempt to use the holidays' emotional power to pressure Republican lawmakers into making a deal.

A headline in the conservative Daily Caller pointed to by conservatives on Twitter captured that perspective: "Disagreeing with Obama can ruin Christmas, says White House report."

If anyone was threatening the economy during the holidays and beyond with a possible recession, conservatives said, it was those liberals who have taken the stance that allowing the fiscal cliff to occur would be good. Taxes would go up on everyone, including taxpayers with the highest incomes. That would raise needed revenue and also increase the pressure on Republicans to renew middle-class tax cuts without extending further cuts to the wealthiest.

Of those who have argued that the failure to reach agreement wouldn't be so bad, Senate Minority Leader Mitch McConnell, R-Ky., said Monday during a Senate floor speech:

"It's time for the president to present a plan that rises above these reckless and radical voices on the hard left, that goes beyond the talking points of the campaign trail, and that has a realistic chance of passing the Congress. The time for campaigning is over. It's time for the president to lead."

Meanwhile, the National Retail Federation, whose political action committee in 2012 made 75 percent of its political contributions to Republicans, according to OpenSecrets.org, issued a response to the White House report.

While the NRF said it found it "encouraging" that the administration understood the pain retailers and consumers would face if across-the-board tax hikes and spending cuts happen, its call to "reform the tax code, fundamentally and structurally address federal spending and reduce the nation's deficit" echoed the stance of congressional Republicans.